“The improvement of data on financial inclusion is undoubtedly the most immediate challenge to overcome. This must be accompanied by the analysis of the needs and expectations of the population.”

We recently spoke with Elvira Cruvinel, head of a new Brazilian Central Bank team coordinating financial inclusion efforts. Only a handful of countries globally have created such financial inclusion teams at central banks. Elvira is part of this small pioneering group of leaders looking to effect major changes to the financial access landscape.

1. What is the Brazilian Central Bank’s vision of financial inclusion?

In recent years, the Central Bank of Brazil has determined that the promotion of financial inclusion is a strategic contribution to the development of the Brazilian economy. We believe that adequate financial inclusion helps reduce poverty, since meeting the demand for financial services can improve quality of life and the development of the financial industry can spur economic growth. We also believe that financial inclusion is beneficial to economic stability, financial system efficiency and the effectiveness of monetary policy instruments.

2. Your team was created in 2009. What have you been able to do since then?

In 2009, we created the Financial Inclusion Project at the Central Bank, after realizing that it was necessary to integrate various stakeholders to develop effective policies for financial inclusion. This required a great deal of interdepartmental coordination and collaboration with other institutions, both national and international. Another major part of our effort was the collection, organization and analysis of data and research on various issues related to the subject. At the end of that first year, we published the book “Perspectives and Challenges for Financial Inclusion in Brazil: a view of different actors.”

Through our efforts that first year, we were able to solidify the Central Bank’s role on this issue in Brazil. In my opinion, our role in pulling stakeholders together showed clearly in Brazil’s first Forum on Financial Inclusion in 2009, which was organized by the Central Bank but involved multiple ministries and hundreds of participants across industry and policy circles. The second Forum, held in 2010, also shed light on regulatory issues, allowing for the definition of a financial inclusion agenda in Brazil.  The third Forum, carried out in November 2011, shed light on ways to measure financial access, the quality of inclusion and products.

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In this third post in the series on Brazil, we discuss another recurring issue about the agent business in Brazil. Read our first two posts on Brazil here.

In a country where agents have existed for close to 10 years nationwide, we would expect that by now banks would have found business reasons to share agents. From a consumer perspective, it is clearly attractive to be able to access banking services for multiple providers at a single agent. Yet agents in Brazil are still exclusive to banks and branded exclusively. Regulation in some markets requires agent exclusivity, but that is not the case in Brazil which makes this largely a business decision. After all these years, why hasn’t it made business sense to banks to share agents? Why haven’t retailers and agent companies struck partnerships with multiple banks and been more aggressive as they have in Mexico?

Does the new Elo brand indicate future plans to share agent networks?

It is important to note that there is already “sharing” of agents at some level. Credit agents are already shared between the small and medium banks, like Banco Cacique and Banco BMG, which specialize in offering payroll-consigned loans. Sharing credit agents turns out to be an attractive situation for these banks which often don’t have bank branches. New regulation recently restricted tiering for these types of agents — you can only outsource one level — but that will not stop the sharing (it should decrease however, the actual number of agents). Transactional agents, on the other hand, while exclusively branded and contracted with one bank can handle transactions for multiple banks. Just as it is with interoperable ATMs, transactional agents of one bank can process boletos (see here again on background) of another bank with differential charges. At least when it comes to processing boletos, which as discussed in an earlier post cover a range of payment transactions and are most likely 70%+ of transactions at agents, there is some form of interoperability at agents. Read the rest of this page »

In this second post in the series on Brazil (read the first one here), we answer the first of the following two recurring questions about the agent business in Brazil: (1) Will agents become a channel for a wider range of financial services for the poor? (2) Will banks share agents and why has that not happened already?

Banco do Brasil agent in Brasilia

The prevailing wisdom about Brazil’s vast agent network (largest in the world, 4x that of Kenya and the Philippines combined!) is that it is used mainly for bill payments. This network appears to be a missed opportunity to also make credit, savings, and other products available to low-income people in an affordable way. Is this channel being underutilized for poor people? (See here for agent numbers and here for coverage maps.)

The truth is that credit, savings and insurance have been made available via agents. Government benefits are also disbursed via agents.  At the ~160,000 transactional agents, which include stores, the postal and lottery networks, customers make a variety of payments, deposit into and withdraw from accounts. Even though the role of transactional agents in the account opening process is restricted by regulation to ID check, document collection and forwarding, banks still use them to start the account opening process.  In addition, there are ~500,000 credit agents, which are individuals on foot who sell payroll-consigned loans. While all banks use credit agents, small and medium banks rely on them for their core loan business. Both transactional and credit agents are covered by the same set of regulations.

While research indicates that the majority of transactions at transactional agents (70%+) are “bill” payments, the bills against which payments are received cover a range of services, not just utilities. Any service provider can issue a bill or boleto which can be paid at any agent (more on boletos here). The payments part of any financial product could be issued as a boleto. A lender can issue a boleto to borrowers for repayment. An insurance company can issue a boleto for premium payments.

While products are available at agents, it is also true that banks have not systematically developed products for the poor via the agent channel. A few factors are likely to play a part in how exactly banks end up using agents moving forward:

• Lawsuits. The banking employees unions are suing banks and agent companies arguing that agents should be treated like bank employees and paid accordingly (read this basic FAQ on these lawsuits). Banks argue that agents do a lot less than bank employees and their role is similar to a basic teller. If this line of argument allows banks and agent companies to win lawsuits (they have had some favorable rulings already), it will mean that while banks may not be able to develop the agent channel to do more (into a sales and service channel, for instance), they can continue to use agents to process boletos.
• Regulations. New regulations that came out four months ago have very nearly eliminated any business from doing just the banking agent business. The regulations prohibit agents whose sole function is that of a transactional agent from receiving and forwarding account opening proposals and processing receipts, payments and electronic transfers for bank deposit and payment orders. As a result, banks will continue to face natural time and bandwidth restrictions on how much an agent does.
• Viability. An implication of these new regulations and lawsuits is that transactional agents can perform nothing more than a basic teller function. Will banks and agents find this limited role economically attractive moving forward? Historically, banks have paid little to agents to handle transactions and agent companies stay in business only because banks pay more for account opening and for loans offered by credit agents. Moreover, at higher transactional volumes, fixed cost infrastructure like ATMs is more economical for banks. In fact, banks are exploring ATM-like alternatives to agents especially in higher volume urban areas where most Brazilians reside anyway.
• Channel strategy. Large banks in Brazil already own large acquiring networks and with boletos becoming electronic (read here), the difference between payments at those networks and agents disappears. While a number of municipalities in the most economically poor areas of the North and Northeast are serviced only by agents today, banks have been known to open mini-branches and install ATMs on the heels of agents, and they may do more of that. More importantly, a couple of banks in the process of developing services for lower-income segments are not necessarily restricting themselves to agents but considering leveraging all their channels.

 - Kabir Kumar & Yanina Seltzer

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We start here by presenting our learnings from Brazil and share our summary note on the industry. We will continue in the coming weeks to look at several other markets, including Mexico, India and Pakistan.

Financial inclusion in Brazil needs to now turn urban (Photo Credit: André Mantelli)

The job of financial inclusion in Brazil is arguably done. Brazil’s banks have made it a global leader in branchless banking. The underlying retail payment infrastructure is in place. There are agent locations in almost every municipality. New agent management companies from around the world regularly visit more than 30 of their counterparts in Brazil to understand how the business works. And Brazil’s Bolsa Familia program, already successful in moving beyond G2P payments to credit and savings, is considered a global flagship.

And yet, financial inclusion in Brazil still has a long way to go. CGAP has studied the branchless banking market in Brazil over the past few months and has written a country note available here. In this blog series, we discuss some of the challenges identified in that note. We start the series here on the CGAP Technology Blog, but we will continue the conversation on a joint blog to be developed by Center for Microfinance Studies at FGV (Fundação Getulio Vargas).

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